By my count, Adacel has won roughly $100mill worth of new...

By my count, Adacel has won roughly $100mill worth of new contracts, contract extensions and licensing agreements since Jan 2007. While Adacel generates different margins, depending on the nature of each individual contract, EBITDA margins for the group as a whole are in the region of 40%. So Adacel currently has roughly $40mill of EBITDA to book. A fraction of this profit will be booked in the upcoming Dec half results, and a bit more again in the June half, which means that FY08 will be a much better year for Adacel than 07. However, things are really going to kick up a notch in FY09 and FY10. Even if Adacel doesn't win another contract for the next 12-18 months (which is highly unlikely), its current order book alone should see it generating EBITDA in the region of $15mill in both FY09 and FY10. For this reason, I think it likely that Adacel will be booking an NPAT in the region of $10-11mill in FY09. So Adacel looks to me to be currently trading on FY09 earnings multiple in the region of just 4 or 5.

And if further mid to large sized contracts eventuate over the coming months (which is also my expectation), then FY09 and FY10 could be significantly higher still. Specifically, over the medium term I'm expecting further good sized contracts from US defence forces, the FAA, and the RAAF. I'm also expecting further announcements regarding ATCiB licensing revenue from the large FFS retrofit market.

While the 2 year earnings outlook for many stocks may be uncertain or gloomy at the moment, it is no exaggeration to say that Adacel's outlook has never been as strong or as certain as it is now.

I have sold a good chunk of my share portfolio over recent weeks, but Adacel is one of 4 stocks I'm keeping at full strength since it has:
(1) absolutely no debt
(2) mostly long-term government contracts that are largely immune from the consumer recession cycle
(3) an excellent earnings outlook
(4) plenty of cash and will be generating a lot more cash,
(5) a tiny market cap; in the region of $45mill (so is probably trading on FY09 earnings multiple of 4 or 5)
(6) a long term share buy-back in place, and
(7) obvious takeover potential when markets settle again and Thorney (major shareholder) thinks the price is right.